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Explain about Mileage method of depreciation.
The mileage method of depreciation is carried out on vehicles (cars, buses, etc.). In this method, depreciation is calculated based on number of kilometres travelled by the vehicle and asset means vehicle.
Formula
Depreciation amount = (Ca-SVa) / TLa
Here, Ca = cost of asset, SVa = scrap value of asset, TLa = total life of the asset.
This method is applied if the following conditions are met −
- Asset life can be calculated in kilometres.
- Asset life is certain.
Example
- A firm purchases an asset worth of Rs. 1500000/- and scrape value is Rs.200000/-. Expected life of an asset will be 150000 KMS. The asset travelled 8000, 12000, 9700, 10000, 10800 respectively in next 5 years. Calculate deprecation using mileage method.
Solution
The solution is as follows −
Cost of asset = 1500000/- Salvage value = 200000/- Total life of asset = 150000
Depreciation amount = (Ca-SVa) / TLa
Here Ca = cost of asset, SVa = scrap value of asset, TLa = total life of the asset
Depreciation amount = (Ca-SVa) / TLa
= (150000 – 200000)/150000
= = 8.67 per KM
Amount depreciated year by year will be shown in the following table −
Year | Distance travelled | Depreciation amount per KM | Yearly depreciation |
---|---|---|---|
1 | 8000 | 8.67 | 69360 |
2 | 12000 | 8.67 | 104040 |
3 | 9700 | 8.67 | 84099 |
4 | 10000 | 8.67 | 86700 |
5 | 10800 | 8.67 | 93636 |